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Smart Investing Newsletter Archive

Boring Companies That May Excite Your Portfolio

Tuesday, April 18th, 2017

Investing in good quality businesses does not necessarily equate to sexy. While rubber tires and chicken may not woo you from excitement, they could have excited your portfolio to new heights over the past several years. The two companies I am referring to are Tyson Foods and Cooper Tire. These are both companies that have had nice appreciation, and both still look poised to run higher.

 

1.Tyson Foods (TSN)

Tyson produces and sells chicken, beef, and pork through well-known names such as Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, and a few others. While the business is not as sexy as cloud computing, the stock has performed very well. During the market bottom in 2008, the stock was trading around $6.70. Fast forward to today and the stock is now at $65.23. That is a total return of 874%. Looking to valuation ratios this company appears to still be fairly valued. The current P/E of 12.9 is below the industry average of 25.5; current price/sales of 0.6 is well below the industry average of 1.3; and price/cash flow of 9.1 is also below the industry average of 15.6. The company also has a strong balance sheet as there is a current ratio of 1.6 which shows nice liquidity and debt/equity of 62.5% provides a reasonable debt level. Looking forward to September 2018, Tyson is estimated to make $5.07 per share. If we apply a forward multiple of 16.5 to the estimated EPS, we arrive at a target sell price of $83.66. This is an estimated return of approximately 28%. Even with the large run up in price, there still appears to be some value in this simple food maker.

2. Cooper Tire and Rubber Company (CTB)

Cooper tire is in the simple business of manufacturing replacement tires for trucks, cars, motorcycles, and racing. Though the company does not have the next hot tech item the stock price has done extremely well over the last several years. Going back to the market bottom in 2008, CTB was trading around $4.00/share. Fast forward to today and the stock price is now $42.90. That’s a total return of 973%. Cooper tire has a great balance sheet with a current ratio of 2.84 and total debt/equity of just 30.28%. Price/Earnings of 9.6 is above the industry average of 7.6 and price/sales of 0.8 is above the industry average of 0.6. While both these valuation ratios are above the industry average, the entire industry seems to be undervalued per these metrics. Price/Cash flow of 6.0 is a positive as it is below the industry average of 6.4. Looking forward to December 2018 the company has estimated EPS of $4.36. If we apply a forward multiple of 16.5 to the estimated EPS, we arrive at a target sell price of $71.94. This is an estimated return of approximately 68%.

While it may be exciting to invest in high flying tech companies, finding excellent quality, boring businesses has provided excellent returns over the past several years.


 

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